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Bribes and Local Fiscal Autonomy in Russia

Pertti Haaparanta

Helsinki School of Economics

Tuuli Juurikkala

Bank of Finland

May 4, 2007

BOFIT Discussion Paper No. 12/2007

Russian industrial enterprises inherited from the Soviet era a tradition of producing welfare and infrastructure services within the firm, also for outside users. Despite the massive restructuring of the economy that took place since, many firms are still active in service provision. At the same time, opaque fiscal federalism is a problem for municipalities whereas rent extraction by public sector officials is a problem for firms. In this paper we examine whether there is a link between these phenomena. We propose a model on local fiscal incentives, service provision by firms and the municipality-firm relationship in the form of bribes. Using survey data from 404 medium and large industrial enterprises in 40 regions of Russia, we find that the higher the share of own revenues in the local budget, the more likely the firms are to report bribes. In the case of infrastructure services, the data also support the hypothesis that the channel is through service provision: the less fiscal autonomy, the more service provision and the less likely the firms are to report bribes.

Number of Pages in PDF File: 30

Keywords: local fiscal incentives, corruption, service provision, Russia, firm survey

JEL Classification: H77, M14, P31

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Date posted: July 28, 2007  

Suggested Citation

Haaparanta, Pertti and Juurikkala, Tuuli, Bribes and Local Fiscal Autonomy in Russia (May 4, 2007). BOFIT Discussion Paper No. 12/2007. Available at SSRN: http://ssrn.com/abstract=1001424 or http://dx.doi.org/10.2139/ssrn.1001424

Contact Information

Pertti Haaparanta
Helsinki School of Economics ( email )
PO Box 1210
FI-00101 Helsinki
HOME PAGE: http://www.hse.fi/EN/HKI/H/Pertti.Haaparanta/1_ContactInfo
Tuuli Juurikkala (Contact Author)
Bank of Finland ( email )
P.O. Box 160
FIN-00101 Helsinki

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